How to import a blender python script in another?
The issue was that the path of the python module - generate.py was not in the locations where python searches for modules. To make generate.py visible to python add the following code on top of test.py

import bpy
import sys
import os

dir = os.path.dirname(bpy.data.filepath)
if not dir in sys.path:
    sys.path.append(dir )

import generate

# this next part forces a reload in case you edit the source after you first start the blender session
import imp
imp.reload(generate)

# this is optional and allows you to call the functions without specifying the package name
from generate import *